The GST Portal is bringing an important system-level change in Input Tax Credit (ITC) utilisation effective from January 2026 tax period onwards.
This change is aimed at removing practical hardship faced by taxpayers due to rigid ITC utilisation sequence under the earlier rules.
1. Earlier ITC Set-Off Rule โ Practical Problem
Statutory Position (Earlier)
As per earlier GST provisions and portal functionality:
- IGST ITCย had to be utilised first:
- Against IGST liability
- Then CGST liability
- Then SGST liability
- CGST ITCย could be utilised only for:
- CGST liability
- Then IGST liability
- SGST ITCย could be utilised only for:
- SGST liability
- Then IGST liability
โ CGST and SGST ITC could not be cross-utilised with each other.
Practical Issue Faced by Taxpayers
Due to the mandatory utilisation sequence, taxpayers frequently faced a cash payment burden, even when sufficient ITC was available in another tax head.
Example โ Earlier Rule (Before Jan 2026)
Output Tax Liability:
- IGST payable: โน1,00,000
- CGST payable: โน40,000
- SGST payable: โน40,000
Available ITC:
- IGST ITC: โน1,00,000
- CGST ITC: โน50,000
- SGST ITC: โน50,000
Step-wise Set-Off (Earlier Rule)
- IGST ITC of โน1,00,000 โ fully adjusted against IGST liability
โ IGST liability becomesย Nil - CGST liability โน40,000 โ paid from CGST ITC
โ CGST ITC balance left: โน10,000 - SGST liability โน40,000 โ paid from SGST ITC
โ SGST ITC balance left: โน10,000
โ In this case, no problem.
Problematic Scenario
Output IGST Liability: โน80,000
Available ITC after adjustment:
- CGST ITC: โน60,000
- SGST ITC: โน20,000
Under earlier rules:
- CGST ITCย cannot be used to pay SGST
- SGST ITCย cannot be used to pay CGST
โก Result:
- Cash payment requiredย despite total ITC being sufficient
- One head showsย excess balance, another requiresย cash payment
This was a frequent compliance pain point.
2. New Rule Applicable from January 2026
What Has Changed?
๐น Update in Table 6.1 of GSTR-3B
Suggestive Cross-Utilisation of ITC
From January-2026 onwards, once IGST ITC is fully exhausted, the GST Portal will allow payment of IGST liability using CGST and SGST ITC in any sequence.
๐ This is a system-enabled flexibility provided on the GST Portal.
3. Key Features of the New Rule
- Applicableย only after IGST ITC is fully utilised
- CGST and SGST ITC can be usedย in any order
- Cross-utilisation isย allowed only for payment of IGST liability
- Implemented throughย portal logic in Table 6.1 of GSTR-3B
- Reducesย cash outflow and blocked credits
4. Example โ New Rule (From Jan 2026)
Output IGST Liability: โน80,000
Available ITC:
- IGST ITC: โน0
- CGST ITC: โน60,000
- SGST ITC: โน20,000
Set-Off Under New Rule
- CGST ITC utilised: โน60,000
- SGST ITC utilised: โน20,000
โก IGST liability fully discharged without any cash payment
โ Earlier: Cash payment was compulsory
โ Now: Entire liability settled through ITC
5. Practical Impact for Taxpayers
โ Major Relief
- Avoids unnecessaryย cash payments
- Preventsย ITC accumulation in one tax head
- Improvesย working capital efficiency
โ Simplified Compliance
- Portal auto-suggests utilisation
- Reduced manual planning errors
- More logical utilisation aligned with business reality
6. Points to Keep in Mind
- Cross-utilisation isย not allowed between CGST and SGST directly
- Allowedย only for IGST liability
- Rule appliesย prospectively from January 2026
- Taxpayers shouldย review ITC balances before filing GSTR-3B
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